Comments on: Content pricing (and the long tail). iTunes price increase . http://www.mediosenlared.es/2009/01/06/content-pricing-and-the-long-tail-itunes-price-increase/ Comentarios personales sobre la gestión en la red de empresas periodísticas Wed, 25 Aug 2010 09:39:02 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Gonzalo Martín http://www.mediosenlared.es/2009/01/06/content-pricing-and-the-long-tail-itunes-price-increase/comment-page-1/#comment-84 Gonzalo Martín Tue, 20 Jan 2009 10:30:22 +0000 http://www.onlinemedia.es/?p=301#comment-84 I think there's a mistake in the Time Warner article. People have misunderstood the long tail concept assuming that producers would achieve nirvana thanks to the Long Tail. As a matter of fact, Anderson's data refer to online aggregators such as Amazon and conclusions are that this sites make a lot, not the most, of their money from the long tail. Instead of a typical Pareto curve, Anderson finds a power law curve that allow agregators to make money from products that tipycally don't give a profit in the off-line market because of storage costs. Since storing every possible item online is virtually free, the online store can deliver any single order no matter how low demand is for that item. Summing up all those low demand orders, the store makes a huge amount of money that the off-line store can not, and that amount of money goes far beyond the 20% that a Pareto curve would anticipate for the 80% of items. Thanks to their presence in the long tail, it's easier for low rotation items to become a hit thanks to user recommendations and other filters, BUT that does not mean that every single item becomes profitable for the producer. Hence, for a content producer there is no alternative but to look for hits be they in the mainstream or a sustainable niche. Companies such as Time Warner can make a lot of money thanks to their huge inventory, but that is something they have been doing for decades. Online distribution should allow this conglomarates to squeeze more profits from their inventory in the long term - let's assume they find the right business model - but they will need the traditional hits economics to keep up competing and delivering the profits their shareholders expect. I think there’s a mistake in the Time Warner article. People have misunderstood the long tail concept assuming that producers would achieve nirvana thanks to the Long Tail. As a matter of fact, Anderson’s data refer to online aggregators such as Amazon and conclusions are that this sites make a lot, not the most, of their money from the long tail. Instead of a typical Pareto curve, Anderson finds a power law curve that allow agregators to make money from products that tipycally don’t give a profit in the off-line market because of storage costs. Since storing every possible item online is virtually free, the online store can deliver any single order no matter how low demand is for that item. Summing up all those low demand orders, the store makes a huge amount of money that the off-line store can not, and that amount of money goes far beyond the 20% that a Pareto curve would anticipate for the 80% of items.

Thanks to their presence in the long tail, it’s easier for low rotation items to become a hit thanks to user recommendations and other filters, BUT that does not mean that every single item becomes profitable for the producer. Hence, for a content producer there is no alternative but to look for hits be they in the mainstream or a sustainable niche.

Companies such as Time Warner can make a lot of money thanks to their huge inventory, but that is something they have been doing for decades. Online distribution should allow this conglomarates to squeeze more profits from their inventory in the long term – let’s assume they find the right business model – but they will need the traditional hits economics to keep up competing and delivering the profits their shareholders expect.

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